Tuesday, July 13, 2010

Shenzhen Subsidies, US-China Acquisition, EV Policy

Three important stories in the China electric vehicle world. The first one is a Local BizGov story...

Shenzhen's new EV subsidies

A little over a month ago, Beijing announced a pilot plan for new energy vehicle subsidies in five Chinese cities, one of which is Shenzhen. In short, the plan calls for subsidies of up to 50,000 yuan for plug-in hybrids and up to 60,000 yuan for pure electric vehicles.

Shenzhen, home of battery and auto manufacturer BYD, has also announced its own subsidies to be added to those from Beijing. Shenzhen will provided subsidies of up to 30,000 yuan for plug-in hybrids and up to 60,000 yuan for pure electrics.

With total subsidies of up to 80,000 yuan ($11,800) for a plug-in hybrid or 120,000 yuan ($17,700) for a pure electric vehicle, these still experimental cars are reaching a price point where early adopters in China would be willing to consider them.

And Shenzhen wins brownie points: from Beijing for supporting low- or zero-emission vehicles, and from BYD who will, it is hoped, build more cars, employ more people and pay more taxes.

If there is another city in the world where new energy vehicles are more affordable than they are in Shenzhen, I am not aware of it.

Yes, you read that right. This is not a joint venture; it's an acquisition.

ZAP, which has been in operation since 1994, has, until recently made electric vehicles designed for off-road use in such places as airports, military bases, large factories, etc. It gained some recognition by showing this futuristic electric car, the Alias at Beijing's Auto Show a few months ago.

And this is no mere concept car. Apparently ZAP had already (pre-acquisition) contracted with Jonway Auto to build the Alias with current plans to introduce it in the US later in 2010.

Jonway Auto is (or will be until this acquisition takes place) owned by Jonway Group which manufactures cars and motorcycles. I am unable to determine who owns Jonway Group, but due to its location in Taizhou, I think it is a pretty good bet that the company is private. And the fact that a foreign company is about to buy a majority stake in one of its subsidiaries is also a good indication that Jonway is most likely not state-owned. (Then again, the difference between public and private is still quite blurry in China.)

Even more interesting is the fact that Jonway has been quite profitable while ZAP, which reportedly hasn't earned a profit since 2002, has only recently emerged from bankruptcy.

On second thought, I'm quite certain Jonway isn't state-owned.

China's new energy vehicle policy is on the way

And finally, Dong Yang, secretary general of the China Association of Automobile Manufacturers announced that a policy on new energy vehicles is in the works and will probably be released in September or October.

About those subsidies I mentioned above, well, China is apparently just getting started. We can expect to see a more comprehensive plan laid out this fall with details on how China intends to dominate this space -- globally. Among other things we can probably expect to see further incentives for auto companies to conduct R&D in this area and further plans for rollout of charging stations.

The lines are being drawn In the global battle to dominate alternative energy vehicle manufacturing. We could not ask for a better real-life experiment to compare the results of state-led vs market-led capitalism.

I think there are at least three important factors here. First, as you've pointed out, the Chinese company is private. Second, they are small. (If they were large and private, like, for example, BYD, it would be harder because BYD has been singled out as a national champion.) And third, they will be building products for export.

The one export precedent I am aware of is Honda's JV with Guangzhou Auto. It is the only auto JV I know of in which the foreign partner owns a majority of the shares (there could be others).

I haven't come across any written exception for this in official policy yet, but a couple of auto insiders in China explained that the exception for Honda was due to their assembling cars for export.

I suppose another important factor is the product being made. There are dozens, perhaps hundreds of wholly-owned foreign auto parts factories in China. The joint venture requirement only applies to final assembly plants. This JV requirement is written into both the 2004 auto policy and China's WTO accession agreement.

As for the exceptions, my guess is that none of these is spelled out anywhere in writing, at least not publicly, so we are left to rely on precedent to try to understand what policy is. And even that is no guarantee the same rules would be applied in the same way in a different case.

ZAP's deal is funded by Dr Priscilla Lu Chairman of the Board @ ZAP & playing a dual role, Venture capitalist & Capital Fund holder while Leveraging ZAP's patents on every other product it has designed in the past. The Alias is NOT the only 3 wheel car being produced in China on the platform ZAP has. Not even sure ZAP holds the patents on these cause other companies are already making & distributing 3 Wheel EV's; some look BETTER then the Alias too. The Fuzion 3 wheel on the alibaba.com website comes to mind. Some believe the cart is coming before the horse with these vehicles. You must have an Electric GRID in place to support these vehicles beyond their 50-80 mile range and that grid must be a 240V system to sustain 8 hour charges that give full range of these vehicles.120V charging systems require 20 hour charges to get full charge. Otherwise these companies are setting themselves up for Failure if the population can't get the pre-advertised range out of them Just like they failed in the 30's with electric cars.